RWE profits slump amid crisis in conventional energy

The rise of renewable energy penetration is creating difficult market conditions for conventional energy generators, as evidenced by today’s announcement from German utility RWE AG that the electricity generator has posted a 45% decline in full-year profit for 2014.

As power prices have slumped in Germany and elsewhere across Europe, leading utilities have seen their bottom lines battered, with the expansion of renewable energy resources exerting downward pressure on wholesale electricity prices.

RWE’s recurrent net income fell to $1.38 billion last year, down from $2.48 billion in 2013, with sales down 7.5%, reports Bloomberg.

At the turn of the year, power for next-year delivery in Germany fell to its lowest level for a decade, which spelled bad news for utilities such as RWE and E.ON that run gas, coal and nuclear generation plants.

For RWE, such conditions have eroded operating profit from conventional power generation, which fell by 29% in 2014 to just over $1 billion. In preparation for shifting market conditions, RWE upped its cost savings targets, reaching €1.4 billion between 2012 and 2014, and targeting €2 billion by 2017.

"The crisis in conventional power generation continues," said RWE CEO Peter Terium in a statement. "We will focus once more on growth opportunities in the future, but without losing sight of the need for strict financial discipline."

RWE has pivoted some of its business objectives towards renewable, most recently in the deepening of a partnership with German renewable energy firm Conergy that will see the utility invest heavily in rooftop solar in Germany.

Fellow utility giant E.ON recently announced that it is to spin-off a new, renewable-dedicated division of the company by 2016 in a concerted effort to stay relevant and profitable in the face of overwhelming evidence that renewable energies will come to dominate the electricity generation landscape in the near future.

E.ON is due to publish its 2014 financial results tomorrow, March 11.